Lockheed Martin (LMT) 10-K risk factor changes: FY2020 vs FY2019

We depend heavily on contracts with the U.S. Government, including contracts related to the F-35 program, for a substantial portion of our [removed: business.][added: business.]

We derived [removed: 71%] [added: 74%] of our total net sales from the U.S. Government in [removed: 2019,] [added: 2020,] including [removed: 61%] [added: 64%] from the DoD.

Current program challenges include, but are not limited to, supplier and partner [removed: performance,] [added: performance (including COVID-19 related challenges),] software development, the availability and receipt of funding for [removed: production] contracts on a timely basis, execution of future flight tests and findings resulting from testing and operating the aircraft, the level of cost associated with life-cycle operations and sustainment and warranties, continuing to reduce the unit production costs, and achieving cost targets.

[removed: If a government] shutdown were to occur and were to continue for an extended period of time, we could be at risk of program cancellations and other disruptions and nonpayment.

[removed: The] [added: Shifting funding priorities, including COVID-19 related spending, or] federal budget [removed: debate] [added: compromises,] could also result in reductions in overall defense spending which could adversely impact our business.

We believe our diverse range of [removed: defense, homeland security and information technology] products and [removed: services,] [added: services] generally make it less likely that cuts in any specific contract or program will affect our business on a long-term basis.

[removed: Depending on] [added: While we do not expect] the [removed: scope and applicability of any] [added: current] sanctions [added: to have a material effect on our current programs, additional sanctions, reciprocal sanctions] or other actions, [removed: the impact] could be material to our operations, operating results, financial position or cash flows.

[added: In addition to having committed to purchase up to 100 F-35 aircraft, six of which had completed production at the time of removal,] Turkish suppliers [removed: also] [added: continue to] produce component parts for the F-35 program, [removed: many] [added: some] of which are single-sourced.

We have made significant progress [removed: toward this end] [added: transitioning to non-Turkish suppliers,] but due to the procedure to qualify new parts and suppliers, this collaborative process between DoD and Lockheed Martin is ongoing.

Efforts to date have significantly reduced our [removed: risk] [added: risk,] but final resolution on a limited number of remaining components could affect F-35 deliveries, [removed: including in 2020,] and any accelerated work stoppage would impact cost.

We will continue to follow official U.S. Government guidance as it relates to [removed: delivery of F-35] [added: completed Turkish] aircraft [removed: to Turkey] and the export and import of component parts from the Turkish supply chain.

The [removed: full] effects [added: on the F-35 program] of [removed: potential] [added: the] U.S. Government sanctions on [removed: Turkey] [added: the SSB] and Turkey’s removal from the F-35 program [removed: cannot] [added: do not appear to] be [removed: determined] [added: significant] at this time.

However, [removed: these] [added: unforeseen] actions could impact the timing of orders, disrupt the production of aircraft, delay delivery of aircraft, disrupt delivery of sustainment components produced in Turkey and impact funding on the F-35 program to include the result of any reprogramming of funds that may be necessary to mitigate the impact of alternate sources for component parts made in Turkey.

[removed: Depending] [added: Although the current sanctions are not expected to have a material effect] on [added: our current programs, they may result in] the [removed: terms and interpretation] [added: loss] of [added: future sales, and] any [removed: sanctions, certain of these activities could be determined to be prohibited, which] [added: future sanctions or reciprocal actions by Turkey] could result in [added: further] restrictions on exports or imports, losses of future sales, reductions in backlog, return of advance payments, costs to develop alternate supply sources, restrictions on payments, force majeure events or contract terminations.

For example, the U.S. Government may terminate any of our government contracts and subcontracts not [added: only for default based on our performance but also at its convenience.]

Upon termination for convenience of a cost-reimbursable contract, we normally are entitled to reimbursement of allowable costs plus a portion of the [removed: fee where] [added: fee, and] allowable costs include our cost to terminate agreements with our suppliers and subcontractors.

As funds are typically appropriated on a fiscal year [removed: basis] [added: basis,] and [removed: as] [added: because] the costs of a termination for convenience may exceed the costs of continuing a program in a given fiscal [removed: year; however,] [added: year,] programs occasionally do not have sufficient funds appropriated to cover the termination costs if the government were to terminate them for convenience.

Additionally, our programs for the U.S. Government often operate for periods of time under [removed: UCAs,] [added: Undefinitized Contract Actions (UCAs),] which means that we begin performing our obligations before the terms, specifications or price are finally agreed to between the parties.

The U.S. Government has unilaterally definitized contracts with us in the past, most notably the F-35 LRIP 9 contract in [removed: 2016,] [added: 2016] and [added: more recently two FMS F-16 upgrade proposals in 2020, and] may do so in the future.

The U.S. Government generally has the right not to exercise option periods and may [added: decide] not [added: to] exercise an option period for various reasons.

Evolving U.S. Government procurement policies and increased emphasis on cost over performance [added: and rapid acquisition] could adversely affect our business.

The U.S. Government could implement procurement policies that negatively impact our [removed: profitability.][added: profitability or the ability to win new business.]

Our customers also may pursue non-traditional contract provisions or contract [removed: type] [added: types] in negotiation of contracts.

This increased risk may lead to losses on fixed price development programs or may cause us not to bid on future fixed-price development [removed: programs.][added: programs, which could adversely affect our future growth prospects and financial performance.]

From time to time, the U.S. Government also has proposed contract terms or taken positions that represent fundamental changes from historical practices or that we believe are inconsistent with the [removed: FAR.][added: FAR or other laws and regulations and which could adversely affect our business.]

[removed: In] addition, we could suffer serious reputational harm if allegations of impropriety were made against us.

These contracts are [removed: mainly] [added: primarily] fixed-price.

[added: In addition, certain contracts associated with our Space business segment contain provisions that require] us to forfeit fees, pay penalties, or provide replacement systems in the event of performance failure, which could negatively affect our earnings and cash flows.

Additionally, [removed: recent] competitive bids [removed: have] [added: that do] not [removed: contained] [added: contain] cost-realism evaluation criteria [removed: which has led] [added: can lead] to competitors taking aggressive pricing positions.

[removed: Additionally, the] [added: The] U.S. Government [added: also] may [removed: fail to] [added: not] award us large competitive contracts [added: that we otherwise might have won] in an effort to maintain a broader industrial base.

Unsuccessful bidders may protest in the hope of being awarded a subcontract for a portion of the work in return for [removed: withdrawing the protest.]

We are experiencing increased [removed: competition] [added: competition, including from emerging non-traditional competitors,] while, at the same time, many of our customers are facing [added: significant] budget pressures, trying to do more with less by cutting costs, [added: using fixed price contracts, deferring large procurements,] identifying more affordable solutions, performing certain work internally rather than hiring contractors, and reducing product development cycles.

[removed: Recent] [added: Furthermore,] acquisitions in our industry, particularly vertical integration by tier-1 prime contractors, could also result in increased competition or limit our access to certain suppliers.

To remain competitive, we must maintain consistently strong customer relationships, seek to understand customer priorities and provide superior performance, advanced technology solutions and [removed: service] [added: services] at an affordable cost with the agility that our customers require to satisfy their mission objectives in an increasingly price competitive environment.

Changes in the economic environment, including [added: the COVID-19 pandemic,] geopolitical events, defense budgets, trade sanctions and constraints on available financing, and the highly competitive and budget constrained environment in which we operate, may adversely affect the financial stability [added: and viability] of our contracting parties or their ability to meet their performance requirements or to provide needed supplies or services on a timely basis.

Some scarce raw materials required for our products are largely controlled by a single [removed: country] [added: country, including rare earth minerals that are largely controlled by China,] and therefore can be adversely impacted by potential trade actions involving that country.

A default termination could expose us to liability and affect our ability to compete for [removed: future contracts and orders.]

This includes efforts to implement emerging digital [added: and network] technologies and capabilities.

Due to the complex [added: and often experimental] nature of the products and services we offer, we may experience technical difficulties during the development of new products or technologies.

If we fail in our development projects or if our new products or technologies fail to achieve customer acceptance, [removed: our ability to procure new contracts could] [added: we may] be unsuccessful [added: in procuring new contracts or winning all or a portion of next generation programs,] and this could [removed: negatively impact] [added: adversely affect] our [added: future performance and] financial results.

Risks Related to our Reliance on Government Contracts

Changes in the U.S. Government’s priorities and delays or reductions in spending could have a material adverse effect on our business.

It represented 28% of our total net sales in 2020.

If a government

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Our business could also be adversely impacted by reductions or delays in spending by non-U.S. government customers who are facing budget pressures.

In addition, costs to comply with new government regulations can increase our costs, reduce our margins and affect our competitiveness.

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In addition, given the customer’s emphasis on cost, even if we effectively manage program life-cycle and sustainment costs and meet customer affordability targets, the customer may elect to recompete programs at the end of existing contracts, which may result in a lost business opportunity.

The DoD also is increasingly pursuing rapid development and acquisition of new technologies through rapid acquisition pathways and procedures, including through other transaction authority agreements (OTAs).

While OTAs do not currently represent a significant portion of our overall contracts (less than 2% of total backlog), in recent years the DoD has increased the frequency of use and size of OTAs and we expect this trend to continue in the future.

OTAs are exempt from many traditional procurement laws, including the FAR, and may be used, subject to certain conditions, for research, prototype development and follow on production for a successful prototype.

The conditions to award OTAs include, in certain instances, that a significant portion of the work under the OTA is performed by a non-traditional defense contractor or that a portion of the cost of the protype project is funded by non-governmental sources.

If we cannot successfully adapt to the DoD’s rapid acquisition processes or if the DoD significantly increases the use of OTAs with non-traditional defense contractors or increasingly mandates cost sharing, then we may lose strategic new business opportunities in high-growth areas and our future performance and results could be adversely affected.

Shorter life-cycle technologies rather than large platforms could also make our existing portfolio less competitive in the future.

In

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withdrawing the protest.

If emerging competitors can offer faster or lower cost services and products at equivalent or even reduced capabilities, then we may lose new business opportunities or contract recompetes, which could adversely affect our future results.

Our success in competing and remaining cost-competitive may depend on our ability to adopt and integrate new digital manufacturing and operating technologies and tools into our product lifecycles and processes.

Other Risks Related to our Operations

The effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results and cash flows are uncertain.

The global outbreak of the coronavirus disease 2019 (COVID-19) has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions.

The pandemic has presented unprecedented business challenges, and we have experienced impacts in each of our business areas related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work and adjusted work schedules.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future pandemic related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted.

The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services and our business are also difficult to predict.

In accordance with the Department of Homeland Security’s identification of the Defense Industrial Base as a critical infrastructure sector in March 2020, our U.S. production facilities have continued to operate during the pandemic, however, our operations have been adjusted in response to the pandemic, including, most significantly, a reduction in the F-35 production rate primarily due to supplier delays.

Staffing levels at our facilities, our customer facilities, and our supplier facilities have and could continue to fluctuate as a result of COVID-19, which could negatively impact our business.

In addition, countries other than the U.S. have different responses to the pandemic that can affect our international operations and the operations of our suppliers and customers.

Base closures, travel restrictions, and quarantine requirements both within and outside the U.S. have affected our normal operations and resulted in some schedule delays and future or prolonged occurrences of these could adversely affect our ability to achieve future contract milestones and our results of operations.

As described in the risk factor below, we rely on other companies and the U.S. Government to provide materials, major components and products, and to perform a portion of the services that are provided to our customers under the terms of most of our contracts.

Many of these suppliers also supply parts for commercial aviation businesses which have been more significantly impacted by the pandemic due to the impacts on these markets.

Global supply chain disruption caused by the response to COVID-19 has impacted some of our programs and could impact our ability to perform on our contracts, in particular in instances where there is not a qualified second source of supply.

We have identified a number of suppliers that have experienced delivery impacts due to COVID-19 and have been working to manage those impacts.

However, if alternatives or other mitigations are not effective, deliveries and other milestones on affected programs could be adversely impacted.

Delays in inspection, acceptance and payment by our customers, many of whom are teleworking, could also affect our sales and cash flows.

This is particularly an issue with respect to classified work that is unable to be done remotely.

Limitations on government operations can also impact regulatory approvals such as export licenses that are needed for international sales and deliveries.

In addition, we could experience delays in new program starts or awards of future work as well as the uncertain

It represented 27% of our total net sales in 2019 and is expected to represent a higher percentage of our sales in future years.

On July 17, 2019, the U.S. Government suspended Turkey’s participation in the F-35 program and initiated the process to formally remove Turkey from the program as a result of Turkey accepting delivery of the Russian S-400 air and missile defense system.

To date, the Administration has not imposed sanctions on Turkish entities involved in the S-400 procurement, although sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) remain a risk.

Additionally, sanctions could be imposed against Turkey as a result of future legislation, including the “Promoting American National Security and Preventing the Resurgence of ISIS Act of 2019” that was passed out of the Senate Foreign Relations Committee on December 11, 2019.

The bill includes significant new sanction provisions targeted at Turkey that, if enacted, would directly affect Lockheed Martin programs in Turkey.

Turkey could implement retaliatory sanctions if the bill moves forward in Congress in 2020.We are monitoring these developments and the potential impacts of any sanctions and other actions regarding Turkey on the F-35 program and on our other programs involving Turkey.

Turkey is one of eight international partner countries on the F-35 program and previously committed to purchase up to 100 F-35 aircraft, of which six have completed production.

We are in discussions with the U.S. Government with respect to the timeline for the transition of Turkish sources.

International sales of the F-35 are negotiated between the U.S. Government and international governments and the process to formally remove Turkey from the F-35 program is a government-to-government matter.

We have other programs involving sales to Turkey or work with Turkish industry, including Sikorsky Black Hawk helicopter production that is dependent on sole-source components from Turkish suppliers and the Turkish Utility Helicopter Program, which is a program to produce helicopters for the Turkish Armed Forces, that could be adversely affected by the imposition of sanctions on Turkey, and potential reciprocal actions.

only for default based on our performance but also at its convenience.

In addition, certain contracts, primarily those associated with our Space business segment, contain provisions that require

Our exposure to such risks may further increase if our international sales grow as we anticipate.

These transaction types differ as FMS transactions entail agreements between the U.S. Government and our international customers through which the U.S. Government purchases products or services from us on behalf of the foreign customer with our contract with the U.S. Government being subject to the FAR and the DFARS.

Additionally, international procurement and local country rules and regulations, contract laws, judicial systems, and contractual terms differ from those in the U.S. and are less familiar to us and may treat as criminal matters issues that would be considered civil matters in the U.S. International regulations may be interpreted by foreign courts less bound by precedent and with more discretion; these interpretations frequently have terms less favorable to us than the FAR.

Export and import and currency risk also may be increased for DCS with international customers.

While these risks are potentially greater than those encountered in our U.S. business, we seek to price our products and services commensurate with the risk profile on DCS with international customers.

Recently, certain customers have increased their demands for offset commitment levels and higher-value content, including the transfer of technologies and local production and economic development.

Offset agreements may require in-country purchases, technology transfers, local manufacturing support, investments in foreign joint ventures and financial support projects as an incentive or as a condition to a contract award.

In some countries, these offset agreements may require the establishment of a joint venture with a local company, which must control the joint venture.

The costs to satisfy our offset obligations are included in the estimates of our total costs to complete the contract and may impact our profitability and cash flows.

Offset agreements generally extend over several years and may provide for penalties in the event we fail to perform in accordance with the offset requirements, which are typically subjective and can be outside of our control.

Additionally, our practice is to substantially hedge all of our currency exposure.

For example, Congress may act to prevent or impose conditions upon the sale or delivery of our products, such as delays in obtaining Congressional approvals for exports requiring Congressional notification to the Kingdom of Saudi Arabia and Turkey and the suspension of sales of F-35 aircraft to Turkey and potential sanctions.

In addition, discussions in Congress may result in sanctions on the Kingdom of Saudi Arabia.

Sales of military products are also affected by defense budgets and U.S. foreign policy, including

We often compete

As a result, we may not be successful in achieving the growth or other intended benefits of strategic investments.

Our joint ventures face many of the same risks and uncertainties as we do.

During 2018, we recognized a non-cash asset impairment charge of $110 million related to our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC).

As of December 31, 2019, the carrying value of our investment in AMMROC is $435 million.

We are continuing to monitor this investment, in light of ongoing performance, business base and economic issues and we may have to record our portion of additional charges, or an impairment of our investment, or both, should the carrying value of our investment exceed its fair value.

Substantially all of AMMROC’s current business is dependent on one contract that is currently up for re-competition and if AMMROC is not successful in securing such business on terms consistent with prior contracts, or at all, the carrying value of our investment would be adversely affected.

These charges could adversely affect our results of operations.

See “Note 1 – Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.

risks and liabilities.

Among the variables management must assess in evaluating costs associated with these cases and remediation sites generally are the status

The MD&A generally discusses [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] items and year-to-year comparisons between [removed: 2019] [added: 2020] and [removed: 2018.][added: 2019.]

Discussions of [removed: 2017] [added: 2018] items and year-to-year comparisons between [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, [removed: 2018] [added: 2019] filed with the SEC on February [removed: 8, 2019.][added: 7, 2020.]

In [removed: 2019, 71%] [added: 2020, 74%] of our [removed: $59.8] [added: $65.4] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 61%] [added: 64%] from the Department of Defense (DoD)), [removed: 28%] [added: 25%] were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers.

We also expect to continue to innovate and invest in technologies to fulfill new mission requirements for our [removed: customers] [added: customers, including through acquisitions,] and invest in our people so that we have the technical skills necessary to [removed: succeed without limiting our ability to return a substantial portion of our free cash flow to our investors in the form of dividends and share repurchases.][added: succeed.]

[removed: 2020 Financial] [added: 2021 Financial] Trends

We expect our [removed: 2020] [added: 2021] net sales to increase [removed: in the mid-single digit range] [added: by approximately 4%] from [removed: 2019] [added: 2020] levels.

The projected growth is driven by [removed: increased volume at] [added: increases across] all four business areas.

Specifically, the increased growth is driven by [removed: the F-35 program] [added: F-35, F-16 and classified programs] at Aeronautics, increased volume [removed: in the tactical and strike missiles and] [added: within integrated] air and missile defense [removed: businesses] at MFC, [removed: Sikorsky] [added: increased] volume [added: on Sikorsky helicopter program and training and logistics solutions programs] at RMS, and hypersonics volume [added: (including an acquisition of Integration Innovation Inc.’s (i3) hypersonics portfolio in November 2020)] at Space.

Total business segment operating [removed: profit] margin in [removed: 2020] [added: 2021] is expected to be approximately [removed: 10.8%;] [added: 11.0%] and cash from operations is expected to be greater than or equal to [removed: $7.6 billion.][added: $8.3 billion, net of $1.0 billion of planned pension contributions.]

Changes in circumstances may require us to revise our assumptions, which could materially change our current estimate of [removed: 2020] [added: 2021] net sales, operating margin and cash flows.

We expect a [added: total] net FAS/CAS pension benefit of approximately [removed: $2.1] [added: $2.3] billion in [removed: 2020] [added: 2021] based on a [removed: 3.25%] [added: 2.50%] discount rate (a [removed: 100] [added: 75] basis point decrease from the end of [removed: 2018),] [added: 2019),] an approximate [removed: 21%] [added: 16.5%] return on plan assets in [removed: 2019,] [added: 2020, and] a 7.00% expected long-term rate of return on plan assets in future years, [removed: and the revised longevity assumptions released during the fourth quarter of 2019 by the Society of Actuaries.][added: among other assumptions.]

We [removed: do not] expect to make [removed: any] contributions [added: of approximately $1.0 billion] to our qualified defined benefit pension plans in [removed: 2020] [added: 2021] and anticipate recovering approximately [removed: $2.0] [added: $2.1] billion of CAS pension cost.

On December [removed: 20, 2019,] [added: 27, 2020,] the President signed the [removed: annual] fiscal year (FY) [removed: 2020 appropriations,] [added: 2021 Consolidated Appropriations Act, providing annual] funding [added: for] the [removed: DoD and] [added: DoD,] other government [removed: agencies (a U.S. Government fiscal year starts on October 1] [added: agencies,] and [removed: ends on September 30).][added: COVID-19 relief.]

The appropriations provide [removed: $738] [added: $741] billion in discretionary funding for national [removed: defense, including $667] [added: defense (includes DoD funding and defense-related spending in energy and water development, homeland security, and military construction appropriations), of which $671] billion [added: is] in base funding and [removed: $71] [added: $69] billion [removed: in] [added: is] Overseas Contingency Operations (OCO)/emergency funding (OCO and emergency supplemental funding do not count toward discretionary spending caps).

Of the [removed: $738] [added: $741] billion, the DoD [removed: is] [added: was] allocated [removed: $709 billion;] [added: $704 billion,] composed of [removed: $637] [added: $635] billion in base funding and [removed: $72] [added: $69] billion in OCO and emergency funding.

The [removed: BBA-19] [added: appropriations adhere to the Bipartisan Budget Act of 2019 (BBA 2019), which] increased the spending limits for both defense and non-defense discretionary [removed: funding] [added: funds] for the [removed: U.S. Government FY] [added: final two years (FY] 2020 and [removed: 2021 set under] [added: FY 2021) of] the Budget Control Act of 2011 (BCA).

International customers accounted for [removed: 37%] [added: 31%] of Aeronautics’ [removed: 2019] [added: 2020] net sales.

There continues to be strong international interest in the F-35 program, which includes commitments from the U.S. Government and [removed: eight] [added: seven] international partner countries and [removed: four] [added: six] international customers, as well as expressions of interest from other countries.

Other areas of international expansion at our Aeronautics business segment include the F-16 [removed: program.][added: and C-130J programs.]

In [removed: 2019,] [added: 2020,] international customers accounted for [removed: 24%] [added: 25%] of MFC’s net sales.

Additionally, we continue to see international demand for our tactical missile and fire control products, where we received orders for [added: precision fires systems from Poland and Romania; and] Apache and Low Altitude Navigation and Targeting Infrared for Night (LANTIRN®) systems for [removed: Qatar, and precision fires systems from Poland and Romania.][added: Qatar.]

In [removed: 2019,] [added: 2020,] international customers accounted for 25% of RMS’ net sales.

Our RMS business segment continues to experience international interest in the Aegis Ballistic Missile Defense System [removed: (Aegis).][added: (Aegis) for which we perform activities in the development, production, modernization, ship integration, test and lifetime support for ships of international customers such as Japan, Spain, Republic of Korea, and Australia.]

In our training and logistics solutions portfolio, we have active programs and pursuits in the United Kingdom, the Kingdom of Saudi Arabia, Canada, [removed: Egypt,] Singapore, [added: Australia, Germany] and [removed: Australia.][added: France.]

We have active development, production, and sustainment support of the S-70i Black Hawk® and MH-60 Seahawk® aircraft to foreign military customers, including Chile, Australia, Denmark, Taiwan, the Kingdom of Saudi [removed: Arabia] [added: Arabia, Colombia,] and [removed: Colombia.][added: Greece.]

Commercial aircraft are sold to [added: international] customers [removed: in the oil and gas industry, emergency medical evacuation,] [added: to support] search and rescue [removed: fleets, and] [added: missions as well as] VIP [removed: customers in over 30 countries.][added: and offshore oil and gas transportation.]

International customers accounted for [removed: 14%] [added: 13%] of Space’s [removed: 2019] [added: 2020] net sales.

[removed: Our] [added: The majority of our] Space business segment [removed: includes the operations] [added: international sales are from our majority share] of AWE Management Limited (AWE), which operates the United Kingdom’s nuclear deterrent program.

The work at AWE covers the entire life cycle, from initial concept, assessment and design, through [removed: component manufacture and assembly, in-service support and decommissioning, and disposal.]

Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy; commitments from our [removed: eight] [added: seven] international partner countries and [removed: four] [added: six] international customers; as well as expressions of interest from other countries.

During [removed: 2019,] [added: 2020,] the F-35 program completed several milestones both domestically and internationally.

The U.S. Government continued testing the aircraft, including ship trials, mission and weapons systems evaluations, and the F-35 fleet recently surpassed [removed: 240,000] [added: 355,000] flight hours.

Since program inception, we have delivered [removed: 491] [added: 611] production F-35 aircraft, demonstrating the F-35 program’s continued progress and longevity.

The first [removed: 491] [added: 611] F-35 aircraft delivered to U.S. and international customers include [removed: 347] [added: 438] F-35A variants, [removed: 108] [added: 128] F-35B variants, and [removed: 36] [added: 45] F-35C variants.

[removed: We] [added: During 2020, we] delivered [removed: 134] [added: 120] production aircraft [removed: in 2019] to our U.S. and international partner countries, and we have [removed: 374] [added: 356] production aircraft in backlog, including orders from our international partner countries.

[removed: Depending on] [added: While we do not expect] the [removed: scope and applicability of any] [added: current] sanctions [added: to have a material effect on our current programs, additional sanctions, reciprocal sanctions] or other actions, [removed: the impact] could be material to our operations, operating results, financial position or cash flows.

[added: In addition to having committed to purchase up to 100 F-35 aircraft, six of which had completed production at the time of removal,] Turkish suppliers [removed: also] [added: continue to] produce component parts for the F-35 program, [removed: many] [added: some] of which are single-sourced.

We have made significant progress [removed: toward this end] [added: transitioning to non-Turkish suppliers,] but due to the procedure to qualify new parts and suppliers, this collaborative process between DoD and Lockheed Martin is ongoing.

Efforts to date have significantly reduced our [removed: risk] [added: risk,] but final resolution on a limited number of remaining components could affect F-35 deliveries, [removed: including in 2020,] and any accelerated work stoppage would impact cost.

We will continue to follow official U.S. Government guidance as it relates to [removed: delivery of F-35] [added: completed Turkish] aircraft [removed: to Turkey] and the export and import of component parts from the Turkish supply chain.

COVID-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions.

We have taken measures to protect the health and safety of our employees, work with our customers and suppliers to minimize disruptions and support our community in addressing the challenges posed by this ongoing global pandemic.

The pandemic has presented unprecedented business challenges, and we have experienced impacts in each of our business areas related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work and adjusted work schedules.

Despite these challenges, Lockheed Martin and the U.S. Government’s pro-active efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on our operations in 2020.

In addition, favorable contract award timing, strong operational performance and lower travel and overhead expenditures due to COVID-19 restrictions partially offset the impacts of COVID-19 on our financial results in 2020.

However, the ultimate impact of COVID-19 on our operations and financial performance in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future pandemic related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted.

The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services and our business are also difficult to predict but could negatively affect our future results of operations.

For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A - Risk Factors.

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In accordance with the Department of Homeland Security’s identification of the Defense Industrial Base as a critical infrastructure sector in March 2020, our U.S. production facilities have continued to operate in support of essential products and services required to meet national security commitments to the U.S. Government and the U.S. military.

Although we are designated as a critical infrastructure workforce, operations have been adjusted in response to the pandemic, including, most significantly, a reduction in the F-35 production rate primarily due to supplier delays.

The reduction delayed 2020 F-35 deliveries by 18 aircraft.

Due to the supplier delays, we implemented a temporary schedule adjustment for the F-35 production workforce in Fort Worth, Texas.

While the F-35 production workforce resumed their pre-COVID-19 work schedule in the third quarter of 2020, staffing levels at our facilities, our customer facilities, and our supplier facilities have and could continue to fluctuate as a result of COVID-19, which could negatively impact our business.

In addition, countries other than the U.S. have different responses to the pandemic that can affect our international operations and the operations of our suppliers and customers.

Base closures, travel restrictions, and quarantine requirements both within and outside the U.S. have affected our normal operations and resulted in some schedule delays and future or prolonged occurrences of these could adversely affect our ability to achieve future contract milestones and our results of operations.

The U.S. Government has taken actions in response to COVID-19 to increase the progress payment rates in new and existing contracts and accelerate contract awards to provide cash flow and liquidity for companies in the Defense Industrial Base, including large prime contractors like Lockheed Martin and smaller suppliers.

We continue to proactively monitor our supply chain and have implemented multiple actions to help mitigate the effects of COVID-19, including accelerating payments to suppliers within our global supply base as a result of the actions taken by the DoD in changing the progress payment policy.

We plan to continue to accelerate payments to the supply chain assuming the continuation of the current DoD progress payment policy in order to mitigate COVID-19 risks, prioritizing impacted suppliers and small businesses.

As described in Item 1A, Risk Factors of our Annual Report on Form 10-K, we rely on other companies and the U.S. Government to provide materials, major components and products, and to perform a portion of the services that are provided to our customers under the terms of most of our contracts.

Many of these suppliers also supply parts for commercial aviation businesses which have been more significantly impacted by the pandemic due to the impacts on these markets.

Global supply chain disruption caused by the response to COVID-19 has impacted some of our programs and could impact our ability to perform on our contracts, in particular in instances where there is not a qualified second source of supply.

We have identified a number of suppliers that have experienced delivery impacts due to COVID-19 and have been working to manage those impacts.

However, if alternatives or other mitigations are not effective, deliveries and other milestones on affected programs could be adversely impacted.

Our work in production facilities and labs has continued throughout the pandemic, consistent with guidance from federal, state and local officials to minimize the spread of COVID-19.

We have taken actions to equip employees with personal protective equipment, establish minimum staffing and social distancing policies, sanitize workspaces more frequently, adopt alternate work schedules and institute other measures aimed to sustain production and related services while minimizing the transmission of COVID-19.

In addition, we have implemented a flexible teleworking policy for employees who can meet our customer commitments remotely, and a significant portion of our workforce is currently teleworking.

It remains uncertain when and on what scale teleworking employees will return to work in person.

We have not previously experienced such a significant portion of our workforce working remotely for a prolonged period, so its effects on our long-term operations are unknown.

Coronavirus-related costs for us and our suppliers are significant and we are seeking reimbursement of coronavirus-related costs under our U.S. Government contracts through a combination of equitable adjustments to the contract price and reimbursement of the costs under Section 3610 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which allows federal agencies to reimburse contractors at the minimum applicable contract billing rate for costs arising from certain paid leave, including sick leave a contractor provides to keep its employees or subcontractors in a ready state, as well as to protect the life and safety of government and contractor personnel from March 27, 2020 through March 31, 2021.

Reimbursement of any costs under Section 3610 of the CARES Act increases sales, but is not expected to be at a profit or fee and so would have the effect of reducing our margins in future periods.

These cost increases, including costs for employees whose jobs cannot be performed remotely and for certain costs incurred prior to March 27, 2020, may not be fully recoverable under our contracts, particularly fixed-price contracts, or adequately covered by insurance.

We also have no assurance that Congress will appropriate funds to cover the reimbursement of defense contractors authorized by the CARES Act, which could reduce funds available for other U.S. Government defense priorities.

We also deferred certain payroll taxes in 2020 as provided for in the CARES Act, which has the effect of increasing our cash from operations in 2020, but reducing cash from operations in 2021 and 2022.

We continue to work with our customers, employees, suppliers and communities to address the impacts of COVID-19 and to take actions in an effort to mitigate adverse consequences.

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The preliminary outlook for 2021 reflects the UK Ministry of Defense’s intent to re-nationalize the Atomic Weapons Establishment program (AWE program) on June 30, 2021.

It does not incorporate the pending acquisition of Aerojet Rocketdyne Holdings, Inc. announced on December 20, 2020.

The outlook for 2021 assumes continued support and funding of our programs, known impacts of COVID-19, and a statutory tax rate of 21%.

We define free cash flow as cash from operations as determined under U.S. generally accepted accounting principles (GAAP), less capital expenditures as presented on our consolidated statements of cash flows.

The preliminary outlook for 2020 assumes the U.S. Government continues to support and fund our key programs.

As previously announced on July 1, 2014, we completed the final step of the planned freeze of our qualified and nonqualified defined benefit pension plans for salaried employees effective January 1, 2020.

The service-based component of the formula used to determine retirement benefits is frozen such that participants are no longer earning further credited service for any period after December 31, 2019.

As a result of these changes, the plans are fully frozen effective January 1, 2020.

Retirees already collecting

benefits and former employees with a vested benefit were not affected by the change.

Current employees also will retain all benefits already earned in their pension plan to date.

Divestiture of Distributed Energy Solutions

On November 18, 2019, we completed the sale of our Distributed Energy Solutions (DES) business, a commercial energy service provider that was part of our MFC business segment.

We received $225 million in cash from the sale and recognized a gain of $34 million (approximately $0 after-tax) for the sale.

Amounts related to this divestiture were not significant to the corporation and the sale did not represent a strategic shift, and accordingly, the operating results, financial position and cash flows for the DES business have not been reclassified to discontinued operations.

The approved funding is in accordance with the Bipartisan Budget Act of 2019 (BBA-19), which was enacted on August 2, 2019.

The defense spending limits were increased by $90 billion to $667 billion for FY 2020 and by $81 billion to $672 billion for FY 2021.

When combined with approved OCO/emergency funding, the agreement raised top-line spending for national defense to the $738 billion enacted in FY 2020 and $741 billion in FY 2021.

By raising the spending limits, the BBA-19 essentially ended the budgetary constraints implemented by the 2011 BCA.

Additionally, the BBA-19 also suspended the debt ceiling through July 31, 2021, at which time the debt limit will be increased to the amount of U.S. Government debt outstanding on that date.

While, in July 2019, the DoD announced plans to remove Turkey, who had previously committed to purchase up to 100 F-35 aircraft, from the F-35 program, we received congressional notification of approval of the proposed sale of 32 F-35A aircraft to Poland in the third quarter of 2019.

Additionally, in January 2019, Singapore announced its selection of the F-35 as their next generation fighter.

Singapore’s initial request is for four F-35s, with the option of eight additional aircraft.

In August 2019, the Bulgarian government and the U.S. Government signed a letter of offer and acceptance worth $1.26 billion regarding Bulgaria’s planned procurement of eight new production F-16 Block 70 aircraft for the Bulgarian Air Force.

The PAC-3 is an advanced missile defense system designed to intercept incoming airborne threats.

We have ongoing PAC-3 programs for production and sustainment activities in Qatar, the Kingdom of Saudi Arabia, UAE, Japan, the Republic of Korea, Poland and Taiwan.

UAE and the Kingdom of Saudi Arabia are international customers for THAAD, and other countries in the Middle East, Europe and the Asia-Pacific region have also expressed interest in our air and missile defense systems.

Other MFC international customers include the United Kingdom, Germany, India, Kuwait and Bahrain.

We perform activities in the development, production, modernization, ship integration, test and lifetime support for ships of international customers such as Japan, Spain, Republic of Korea, and Australia.

We have ongoing programs in Canada and Chile for combat systems equipment upgrades on Halifax-class and Type 23 frigates.

In addition, Space has an international contract with Japan to design and manufacture geostationary communication satellites using the LM2100 satellite platform.

During 2019, multiple customers declared Initial Operating Capability including the U.S. Navy for its F-35C variant, the United Kingdom for its F-35B variant, Japan for its F-35A variant, and Norway for its F-35A variant.

The full-rate production decision, also known formally as Milestone C, is expected to be delayed by the DoD until Initial Operational Test and Evaluation (IOT&E) activities are complete in the Naval Air Systems Command (NAVAIR)-led Joint Simulation Environment (JSE).

The JSE is used to conduct simulated evaluations of the F-35 in a range of high-threat scenarios.

Testing is expected to be completed by the end of 2020.

The data will be utilized by the U.S. Government as part of their evaluation to transition the F-35 program from Low Rate Initial Production (LRIP) into full-rate production.

During the fourth quarter of 2019, the U.S. Government and Lockheed Martin finalized a Block Buy agreement for the production and delivery of F-35s in Lots 12, 13 and 14 at the lowest aircraft price in the history of the program.

This includes amounts previously awarded by the U.S. Government in November 2018 for the production of 252 Block Buy F-35 aircraft.

As part of the fourth quarter 2019 agreement, the U.S. Government awarded the production of an additional 112 F-35 Block Buy Aircraft.

On July 17, 2019, the U.S. Government suspended Turkey’s participation in the F-35 program and initiated the process to formally remove Turkey from the program as a result of Turkey accepting delivery of the Russian S-400 air and missile defense system.

To date, the Administration has not imposed sanctions on Turkish entities involved in the S-400 procurement, although sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) remain a risk.

Additionally, sanctions

could be imposed against Turkey as a result of future legislation, including the “Promoting American National Security and Preventing the Resurgence of ISIS Act of 2019” that was passed out of the Senate Foreign Relations Committee on December 11, 2019.

The estimated fair value of our outstanding debt was [removed: $15.9] [added: $16.9] billion at December 31, [removed: 2019] [added: 2020] and the outstanding principal amount was [removed: $13.8] [added: $13.3] billion, excluding unamortized discounts and issuance costs of [removed: $1.2] [added: $1.1] billion.

A 10% change in the level of interest rates would not have a material impact on the fair value of our outstanding debt at December 31, [removed: 2019.][added: 2020.]

As a result, we do not have material foreign currency [added: transaction] exposure, including exposure to the pound sterling or euro should there be material foreign currency fluctuations due to the United Kingdom departing from the European Union (commonly referred to as Brexit).

For fixed rate borrowings, we may use variable interest rate swaps, effectively converting fixed rate borrowings to variable rate borrowings in order to [removed: reduce] [added: hedge changes in] the [removed: amount] [added: fair value] of [removed: interest paid.][added: the debt.]

The aggregate notional amount of our outstanding interest rate swaps at December 31, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] was [removed: $750] [added: $572] million and [removed: $1.3 billion.][added: $750 million.]

The aggregate notional amount of our outstanding foreign currency hedges at December 31, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] was [removed: $3.8] [added: $3.4] billion and [removed: $3.5] [added: $3.8] billion.

At December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] the net fair value of our derivative instruments was not material (see “Note [removed: 16] [added: 17] – Fair Value Measurements” included in our Notes to Consolidated Financial Statements).

As of December 31, [removed: 2019,] [added: 2020,] investments in the trust totaled [removed: $1.8] [added: $2.0] billion and are reflected at fair value on our consolidated balance sheet in other noncurrent assets.

Both the change in the fair value of the trust and the change in the value of the liabilities are recognized on our consolidated statements of earnings in other unallocated, net and were not material for the year ended December 31, [removed: 2019.][added: 2020.]

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In [removed: 2019, 71%] [added: 2020, 74%] of our [removed: $59.8] [added: $65.4] billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including [removed: 61%] [added: 64%] from the Department of Defense (DoD)), [removed: 28%] [added: 25%] were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers.

We also expect to continue to innovate and invest in technologies to fulfill new mission requirements for our [removed: customers] [added: customers, including through acquisitions,] and invest in our people so that we have the technical skills necessary to succeed.

In [removed: 2019,] [added: 2020,] our Aeronautics business segment generated net sales of [removed: $23.7] [added: $26.3] billion, which represented 40% of our total consolidated net sales.

Aeronautics’ customers include the military services, principally the U.S. Air Force and U.S. Navy, and various other government agencies of the U.S. and other [removed: countries.][added: countries, as well as commercial and other customers.]

In [removed: 2019,] [added: 2020,] U.S. Government customers accounted for [removed: 62%,] [added: 72%,] international customers accounted for [removed: 37%] [added: 25%] and U.S. commercial and other customers accounted for [removed: 1%] [added: 3%] of [removed: Aeronautics’] [added: RMS’] net sales.

Net sales from Aeronautics’ combat aircraft products and services represented [removed: 32%] [added: 33%] of our total consolidated net sales in [added: 2020 and 32% in] both 2019 and [removed: 2018, and 31% in 2017.][added: 2018.]

[removed: | • |] [added: -] F-35 Lightning II Joint Strike Fighter - international multi-role, multi-variant, fifth generation stealth fighter; [removed: |]

[removed: | • |] [added: -] C-130 Hercules - international tactical airlifter; [removed: |]

[removed: | • |] [added: -] F-16 Fighting Falcon - low-cost, combat-proven, international multi-role fighter; and [removed: |]

[removed: | • |] [added: -] F-22 Raptor - air dominance and [removed: multi-mission] [added: multi-role] fifth generation stealth fighter. [removed: |]

The F-35 program is our largest program, generating [removed: 27%] [added: 28%] of our total consolidated net sales, as well as 69% of Aeronautics’ net sales in [removed: 2019.][added: 2020.]

Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps and U.S. Navy; commitments from our [removed: eight] [added: seven] international partner countries and [removed: four] [added: six] international customers; as well as expressions of interest from other countries.

[added: 120 aircraft,] including [removed: 54] [added: 46] to international customers, resulting in total deliveries of [removed: 491] [added: 611] production aircraft since program inception.

We have [removed: 374] [added: 356] production aircraft in backlog as of December 31, [removed: 2019,] [added: 2020,] including orders from our international partner countries.

We have [removed: 99] [added: 87] aircraft in our backlog as of December 31, [removed: 2019.][added: 2020.]

In [removed: July 2019,] [added: 2020,] the U.S. Government awarded [removed: a contract] [added: contracts] for [removed: 14] new production F-16 Block 70/72 aircraft for [removed: the Slovak Republic.][added: Taiwan (66 aircraft) and Bulgaria (8 aircraft).]

As of December 31, [removed: 2019,] [added: 2020,] we have [removed: 30] [added: 128] F-16 aircraft in backlog.

Our Advanced Development Programs (ADP) organization, also known as Skunk Works®, is focused on future systems, including unmanned and manned aerial systems and next generation capabilities for [removed: advanced strike,] [added: hypersonics,] intelligence, surveillance, reconnaissance, situational awareness and air mobility.

In [removed: 2019,] [added: 2020,] our MFC business segment generated net sales of [removed: $10.1] [added: $11.3] billion, which represented 17% of our total consolidated net sales.

In [removed: 2019,] [added: 2020,] U.S. Government customers accounted for [removed: 75%, international customers accounted for 24% and U.S. commercial] [added: 75%] and [removed: other] [added: international] customers accounted for [removed: 1%] [added: 25%] of MFC’s net sales.

[removed: | • | The Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense programs.] PAC-3 is an advanced defensive missile for the U.S. Army and international customers designed to intercept and eliminate incoming airborne threats using kinetic energy. [removed: THAAD is a transportable defensive missile system for the U.S. Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere. |]

[removed: | • | The Multiple Launch Rocket System (MLRS), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM) and Javelin tactical missile programs.] MLRS is a highly mobile, automatic system that fires surface-to-surface rockets and missiles from the M270 and High Mobility Artillery Rocket System platforms produced for the U.S. Army and international customers. [removed: Hellfire is an air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for the U.S. Army, Navy, Marine Corps and international customers. JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is produced for the U.S. Air Force and international customers. Javelin is a shoulder-fired anti-armor rocket system, which is produced for the U.S. Army, Marine Corps and international customers. |]

[removed: | • |] [added: -] The Special Operations Forces Global Logistics Support Services (SOF GLSS) [removed: program] [added: program, which] provides logistics support services to the special operations forces of the U.S. military. [removed: |]

[removed: | • |] [added: -] Hypersonics programs, [added: which include] several programs with the U.S. Air Force and U.S. Army to design, develop and build hypersonic strike weapons. [removed: |]

In [removed: 2019,] [added: 2020,] our RMS business segment generated net sales of [removed: $15.1] [added: $16.0] billion, which represented 25% of our total consolidated net sales.

In [removed: 2019,] [added: 2020,] U.S. Government customers accounted for [removed: 72%, international customers accounted for 25% and U.S. commercial] [added: 69%] and [removed: other] [added: international] customers accounted for [removed: 3%] [added: 31%] of [removed: RMS’] [added: Aeronautics’] net sales.

Net sales from RMS’ Sikorsky helicopter programs represented [removed: 9%, 10% and 12%] [added: 9%] of our consolidated net sales in [added: 2020 and] 2019, [removed: 2018] and [removed: 2017.][added: 10% in 2018.]

[removed: | • | The LCS] [added: - Integrated warfare systems] and [added: sensors (IWSS) programs such as Aegis Combat System (Aegis) programs that serve as an air and missile defense system for] the [added: U.S. Navy and international customers and is also a sea and land-based element of the U.S. missile defense system, and the Littoral Combat Ship (LCS) and] Multi-Mission Surface Combatant (MMSC) programs to provide surface combatant ships for the U.S. Navy and international customers that are designed to operate in shallow waters and the open ocean. [removed: |]

[removed: | • | The] [added: -] Command, [added: control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance (C6ISR) programs such as the Command,] Control, Battle Management and Communications (C2BMC) [removed: contract, a] program to provide an air operations center for the Ballistic Missile Defense System for the U.S. [removed: Government. |][added: Government, and undersea combat systems programs largely serving the U.S. Navy.]

In [removed: 2019,] [added: 2020,] our Space business segment generated net sales of [removed: $10.9] [added: $11.9] billion, which represented 18% of our total consolidated net sales.

Space’s customers include [added: the U.S. Air Force, U.S. Navy and] various government agencies of the U.S. and other countries along with commercial customers.

In [removed: 2019,] [added: 2020,] U.S. Government customers accounted for [removed: 86%] [added: 87%] and international customers accounted for [removed: 14%] [added: 13%] of Space’s net sales.

Net sales from Space’s satellite products and services represented 11% of our total consolidated net sales in [added: 2020,] 2019 and [removed: 2018, and 12% in 2017.][added: 2018.]

[removed: | • |] [added: -] The United Kingdom’s [added: (UK)] nuclear deterrent program operated by the AWE Management Limited (AWE) joint venture. [removed: |]

[removed: | • |] [added: -] The Trident II D5 Fleet Ballistic Missile (FBM), a program with the U.S. Navy for the only submarine-launched intercontinental ballistic missile currently in production in the U.S. [removed: |]

[removed: | • |] [added: -] The Space Based Infrared System (SBIRS) and Next Generation Overhead Persistent Infrared (Next Gen OPIR) system programs, which provide the U.S. Air Force with enhanced worldwide missile warning capabilities. [removed: |]

[removed: | • |] [added: -] The Orion Multi-Purpose Crew Vehicle (Orion), a spacecraft for the National Aeronautics and Space Administration (NASA) utilizing new technology for human exploration missions beyond low earth orbit. [removed: |]

[removed: | • |] [added: -] Global Positioning System (GPS) III, a program to modernize the GPS satellite system for the U.S. Air Force. [removed: |]

[removed: | • |] [added: -] Hypersonics programs, [added: which include] several programs with the U.S. [removed: Air Force, U.S.] Army and U.S. Navy to design, develop and build hypersonic strike weapons. [removed: |]

[removed: | • |] [added: -] The Advanced Extremely High Frequency (AEHF) system, the next generation of highly secure communications satellites for the U.S. Air Force. [removed: |]

Strategic Action

On December 20, 2020, we entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet Rocketdyne).

We currently expect the transaction to close in the second half of 2021, subject to the satisfaction of customary closing conditions, including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders.

For more information regarding the proposed transaction, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 2 – Strategic Action included in our Consolidated Financial Statements and Item 1A - Risk Factors.

In 2020, we delivered

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This was a decrease from 134 aircraft delivered in the year ended December 31, 2019 due to the impacts of coronavirus disease 2019 (COVID-19) on the F-35 production rate in 2020 and we expect the production rate in 2021 to continue to be impacted by COVID-19.

We delivered 22 C-130J aircraft in 2020.

- The Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense programs.

THAAD is a transportable defensive missile system for the U.S. Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere.

- The Multiple Launch Rocket System (MLRS), Hellfire, Joint Air-to-Surface Standoff Missile (JASSM) and Javelin tactical missile programs.

Hellfire is an air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for the U.S. Army, Navy, Marine Corps and international customers.

JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is produced for the U.S. Air Force and international customers.

Javelin is a shoulder-fired anti-armor rocket system, which is produced for the U.S. Army, Marine Corps and international customers.

- The Apache, Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST21®) fire control systems programs.

The Apache fire control system provides weapons targeting capability for the Apache helicopter for the U.S. Army and international customers.

SNIPER is a targeting system for several fixed-wing aircraft and is produced for the U.S. Air Force and international customers.

IRST21 provides long-range infrared detection and tracking of airborne threats

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and is used on several fixed-wing aircraft.

IRST21 is produced for the U.S. Air Force, the U.S. Navy, the National Guard and international customers.

RMS designs, manufactures, services and supports various military and commercial helicopters, surface ships, sea and land-based missile defense systems, radar systems, sea and air-based mission and combat systems, command and control mission solutions, cyber solutions, and simulation and training solutions.

- Sikorsky programs such as those related to the Black Hawk® and Seahawk® helicopters which are in service with U.S. and foreign governments, the CH-53K King Stallion heavy lift helicopter serving the U.S. Marine Corps, the Combat Rescue Helicopter (CRH) utilized by the U.S. Air Force, and the VH-92A helicopter for the U.S. Marine One transport mission.

- Training and logistics solutions (TLS) programs such as those providing sustainment services and programs that provide simulators and associated training to U.S. military and foreign government customers.

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On November 2, 2020, the UK Ministry of Defense (MOD) announced its intention to re-nationalize the program on June 30, 2021.

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For more information on the risks related to our suppliers and raw materials, see Item 1A.

Risk Factors.

The business risks and capital requirements

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Human Capital Resources

Due to the specialized nature of our business, our performance depends on identifying, attracting, developing, motivating, and retaining a highly skilled workforce in multiple areas, including engineering, science, manufacturing, information technology, cybersecurity, business development and strategy and management.

Our human capital management strategy, which we refer to as our people strategy, is tightly aligned with our business needs and technology strategy.

During 2020, our human capital efforts were focused on accelerating the transformation of our technology for workforce management through investments in upgraded systems and processes, and continuing to increase our agility to meet the quickly changing needs of the business, considering the challenges of the global pandemic and social and political unrest.

We use a variety of human capital measures in managing our business, including: workforce demographics; diversity metrics with respect to representation, attrition, hiring, promotions and leadership; and talent management metrics including retention rates of top talent and hiring metrics.

Workforce Demographics

As of December 31, 2020, we had a highly skilled workforce made up of approximately 114,000 employees, including approximately 60,000 engineers, scientists and information technology professionals.

Diversity and Inclusion

Diversity and inclusion is a business imperative for us, as we believe that it is key to our future success.

| | |

| --- | --- |

The DoD authorized the F-35 Joint Program Office (JPO) to begin the Government-led Initial Operational Test and Evaluation (IOT&E) phase in December 2018.

The full-rate production decision, also known formally as Milestone C, is expected to be delayed by the DoD until IOT&E activities are complete in the Naval Air Systems Command (NAVAIR)-led Joint Simulation Environment (JSE).

The JSE is used to conduct simulated evaluations of the F-35 in a range of high-threat scenarios.

Testing is expected to be completed by the end of 2020.

The data will be utilized by the U.S. Government as part of their evaluation to transition the F-35 program from Low Rate Initial Production (LRIP) into full-rate production.

In 2019, we delivered 134 aircraft,

We delivered 28 C-130J aircraft in 2019, including three to international customers.

Additionally, we received a contract in 2018 from the U.S. Government for the sale of 16 new production Block 70 F-16 aircraft for the Royal Bahraini Air Force.

| • | The Apache, Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST21®) fire control systems programs. The Apache fire control system provides weapons targeting capability for the Apache helicopter for the U.S. Army and international customers. SNIPER is a targeting system for several fixed-wing aircraft and is produced for the U.S. Air Force and international customers. IRST21 provides long-range infrared detection and tracking of airborne threats and is used on several fixed-wing aircraft. IRST21 is produced for the U.S. Air Force, the U.S. Navy, the National Guard and international customers. |

RMS provides design, manufacture, service and support for a variety of military and commercial helicopters; ship and submarine mission and combat systems; mission systems and sensors for rotary and fixed-wing aircraft; sea and land-based missile defense systems; radar systems; the Littoral Combat Ship (LCS); simulation and training services; and unmanned systems and technologies.

In addition, RMS supports the needs of government customers in cybersecurity and delivers communications and command and control capabilities through complex mission solutions for defense applications.

| • | The Black Hawk® and Seahawk® helicopters manufactured for U.S. and foreign governments. |

| • | The Aegis Combat System (Aegis) serves as an air and missile defense system for the U.S. Navy and international customers and is also a sea and land-based element of the U.S. missile defense system. |

| • | The CH-53K King Stallion helicopter delivering the next generation heavy lift helicopter for the U.S. Marine Corps. |

| • | The VH-92A helicopter manufactured for the U.S. Marine One transport mission. |

cash flow, primarily because substantially all of our environmental costs are allowable in establishing the price of our products and services under our contracts with the U.S. Government.

Backlog

At December 31, 2019, our backlog was $144.0 billion compared with $130.5 billion at December 31, 2018.

Backlog is converted into sales in future periods as work is performed or deliveries are made.

We expect to recognize approximately 39% of our backlog over the next 12 months and approximately 65% over the next 24 months as revenue, with the remainder recognized thereafter.

Our backlog includes both funded (firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts.

We do not include unexercised options or potential orders under indefinite-delivery, indefinite-quantity agreements in our backlog.

If any of our contracts with firm orders were to be terminated, our backlog would be reduced by the expected value of the unfilled orders of such contracts.

Funded backlog was $94.5 billion at December 31, 2019, as compared to $86.4 billion at December 31, 2018.

Employees

Management considers employee relations to be good.

The words

For information regarding the matters discussed above, including current estimates of the amounts that we believe are required for remediation or clean-up to the extent estimable, see “Critical Accounting Policies - Environmental Matters” in Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Note [removed: 14] [added: 15] – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

[removed: FORM 10-K][added: Form 10-K]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the fiscal year ended December 31, [removed: 2019][added: 2020]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

| Maryland | | | | [added: | | | | | | | |] 52-1893632 | [added: | |]

| (State or other jurisdiction of incorporation or organization) | | | | [added: | | | | | | | |] (I.R.S. Employer Identification No.) | [added: | |]

| 6801 Rockledge Drive, | [added: | |] Bethesda, | [added: | |] Maryland | | [added: | | | |] 20817 | [added: | |]

| (Address of principal executive offices) | | | | [added: | | | | | | | |] (Zip Code) | [added: | |]

[removed: (301) 897-6000][added: (301) 897-6000]

| Title of each class | [added: | |] Trading Symbol | [added: | |] Name of each exchange on which registered | [added: | |]

| Common Stock, $1 par value | [added: | |] LMT | [added: | |] New York Stock Exchange | [added: | |]

The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant computed by reference to the last sales price of such stock, as of the last business day of the registrant’s most recently completed second fiscal quarter, which was June [removed: 28, 2019,] [added: 26, 2020,] was approximately [removed: $102.1] [added: $99.3] billion.

There were [removed: 281,937,366] [added: 280,103,431] shares of our common stock, $1 par value per share, outstanding as of January [removed: 31, 2020.][added: 22, 2021.]

Portions of Lockheed Martin Corporation’s [removed: 2020] [added: 2021] Definitive Proxy Statement are incorporated by reference into Part III of this Form 10‑K.

The [removed: 2020] [added: 2021] Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

For the Year [removed: Ended December] [added: Ended December] 31, [removed: 2019][added: 2020]

| PART I | | [added: | | | |] Page | [added: | |]

| ITEM 1. | [removed: [Business](#s9916639A4FE95F37896CD8D1D8F171DB)] | [removed: [3](#s9916639A4FE95F37896CD8D1D8F171DB)] | [added: [Business](#i74878167aa2c40f9af03ce44bcca91e2_13) | | | [3](#i74878167aa2c40f9af03ce44bcca91e2_13) | | |]

| ITEM 1A. | [added: | |] [Risk [removed: Factors](#s1287A96C6CDC58B1ADFDF6C3A41C732C)] [added: Factors](#i74878167aa2c40f9af03ce44bcca91e2_16)] | [removed: [9](#s1287A96C6CDC58B1ADFDF6C3A41C732C)] | [added: | [10](#i74878167aa2c40f9af03ce44bcca91e2_16) | | |]

| ITEM 1B. | [added: | |] [Unresolved Staff [removed: Comments](#s15AB651703DB5733BD7AFAE5F216121B)] [added: Comments](#i74878167aa2c40f9af03ce44bcca91e2_19)] | [removed: [20](#s15AB651703DB5733BD7AFAE5F216121B)] | [added: | [24](#i74878167aa2c40f9af03ce44bcca91e2_19) | | |]

| ITEM 2. | [removed: [Properties](#s9CCC61914CFB5D4F8A41973B5EDC9815)] | [removed: [20](#s9CCC61914CFB5D4F8A41973B5EDC9815)] | [added: [Properties](#i74878167aa2c40f9af03ce44bcca91e2_22) | | | [24](#i74878167aa2c40f9af03ce44bcca91e2_22) | | |]

| ITEM 3. | [added: | |] [Legal [removed: Proceedings](#sF1F5E83D43055EA4BAFFF0464AF24FB0)] [added: Proceedings](#i74878167aa2c40f9af03ce44bcca91e2_25)] | [removed: [21](#sF1F5E83D43055EA4BAFFF0464AF24FB0)] | [added: | [25](#i74878167aa2c40f9af03ce44bcca91e2_25) | | |]

| ITEM 4. | [added: | |] [Mine Safety [removed: Disclosures](#sFA04AA15C6C15DBA8A6478D32249FA48)] [added: Disclosures](#i74878167aa2c40f9af03ce44bcca91e2_28)] | [removed: [21](#sFA04AA15C6C15DBA8A6478D32249FA48)] | [added: | [25](#i74878167aa2c40f9af03ce44bcca91e2_28) | | |]

| ITEM 4(a). | [added: | |] [Information about our Executive [removed: Officers](#sD25622ED3A9D52538D1AE3A120E28497)] [added: Officers](#i74878167aa2c40f9af03ce44bcca91e2_31)] | [removed: [22](#sD25622ED3A9D52538D1AE3A120E28497)] | [added: | [26](#i74878167aa2c40f9af03ce44bcca91e2_31) | | |]

| PART II | | | [added: | | | | | |]

| ITEM 5. | [added: | |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sDE1861BCE6795E5A8FF097080E42EFBA)] [added: Securities](#i74878167aa2c40f9af03ce44bcca91e2_37)] | [removed: [23](#sDE1861BCE6795E5A8FF097080E42EFBA)] | [added: | [28](#i74878167aa2c40f9af03ce44bcca91e2_37) | | |]

| ITEM 6. | [added: | |] [Selected Financial [removed: Data](#sC62E8B592C64584DA4D795A779BCC1D7)] [added: Data](#i74878167aa2c40f9af03ce44bcca91e2_40)] | [removed: [25](#sC62E8B592C64584DA4D795A779BCC1D7)] | [added: | [30](#i74878167aa2c40f9af03ce44bcca91e2_40) | | |]

| ITEM 7. | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s0B8ACF9F5A9057B89E411E09065F9F3C)] [added: Operations](#i74878167aa2c40f9af03ce44bcca91e2_43)] | [removed: [27](#s0B8ACF9F5A9057B89E411E09065F9F3C)] | [added: | [32](#i74878167aa2c40f9af03ce44bcca91e2_43) | | |]

| ITEM 7A. | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sA56C479ACA8250428CAD00B0D1AA164F)] [added: Risk](#i74878167aa2c40f9af03ce44bcca91e2_70)] | [removed: [55](#sA56C479ACA8250428CAD00B0D1AA164F)] | [added: | [63](#i74878167aa2c40f9af03ce44bcca91e2_70) | | |]

| ITEM 8. | [added: | |] [Financial Statements and Supplementary [removed: Data](#sD50097946013591CA98C560ABBB2F380)] [added: Data](#i74878167aa2c40f9af03ce44bcca91e2_73)] | [removed: [56](#sD50097946013591CA98C560ABBB2F380)] | [added: | [64](#i74878167aa2c40f9af03ce44bcca91e2_73) | | |]

| ITEM 9. | [added: | |] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s44BCE4170F195709A260505E6E0D4CF5)] [added: Disclosure](#i74878167aa2c40f9af03ce44bcca91e2_187)] | [removed: [99](#s44BCE4170F195709A260505E6E0D4CF5)] | [added: | [107](#i74878167aa2c40f9af03ce44bcca91e2_187) | | |]

| ITEM 9A. | [added: | |] [Controls and [removed: Procedures](#s35C5A63BA0685560B108A21543AF4500)] [added: Procedures](#i74878167aa2c40f9af03ce44bcca91e2_190)] | [removed: [99](#s35C5A63BA0685560B108A21543AF4500)] | [added: | [107](#i74878167aa2c40f9af03ce44bcca91e2_190) | | |]

| ITEM 9B. | [added: | |] [Other [removed: Information](#s8D3588F0426653F2A984F5F5A2A75505)] [added: Information](#i74878167aa2c40f9af03ce44bcca91e2_196)] | [removed: [101](#s8D3588F0426653F2A984F5F5A2A75505)] | [added: | [109](#i74878167aa2c40f9af03ce44bcca91e2_196) | | |]

| PART III | | | [added: | | | | | |]

| ITEM 10. | [added: | |] [Directors, Executive Officers and Corporate [removed: Governance](#s1F9C9CF33A5055E29A4F4D49CCD93A39)] [added: Governance](#i74878167aa2c40f9af03ce44bcca91e2_202)] | [removed: [101](#s1F9C9CF33A5055E29A4F4D49CCD93A39)] | [added: | [109](#i74878167aa2c40f9af03ce44bcca91e2_202) | | |]

| ITEM 11. | [added: | |] [Executive [removed: Compensation](#s521D3430098C50C5810FCC04BB1FB63A)] [added: Compensation](#i74878167aa2c40f9af03ce44bcca91e2_205)] | [removed: [101](#s521D3430098C50C5810FCC04BB1FB63A)] | [added: | [109](#i74878167aa2c40f9af03ce44bcca91e2_205) | | |]

| ITEM 12. | [added: | |] [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sF8E71C68EAE35577AE7D318C6DC82208)] [added: Matters](#i74878167aa2c40f9af03ce44bcca91e2_208)] | [removed: [101](#sF8E71C68EAE35577AE7D318C6DC82208)] | [added: | [110](#i74878167aa2c40f9af03ce44bcca91e2_208) | | |]

| ITEM 13. | [added: | |] [Certain Relationships and Related Transactions, and Director [removed: Independence](#sD4ECABEE961F57E7A490B617ABFB9EAA)] [added: Independence](#i74878167aa2c40f9af03ce44bcca91e2_211)] | [removed: [101](#sD4ECABEE961F57E7A490B617ABFB9EAA)] | [added: | [110](#i74878167aa2c40f9af03ce44bcca91e2_211) | | |]

| ITEM 14. | [added: | |] [Principal Accounting Fees and [removed: Services](#s6624C272C4455B508E49DFAD4DD90B75)] [added: Services](#i74878167aa2c40f9af03ce44bcca91e2_214)] | [removed: [101](#s6624C272C4455B508E49DFAD4DD90B75)] | [added: | [110](#i74878167aa2c40f9af03ce44bcca91e2_214) | | |]

| PART IV | | | [added: | | | | | |]

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

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| [SIGNATURES](#i74878167aa2c40f9af03ce44bcca91e2_226) | | | | | | [115](#i74878167aa2c40f9af03ce44bcca91e2_226) | | |

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[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

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| [SIGNATURES](#s1070DF09A0B3598DB1EC190324E1D094) | | [106](#s1070DF09A0B3598DB1EC190324E1D094) |

At December 31, [removed: 2019,] [added: 2020,] we owned or leased building space (including offices, manufacturing plants, warehouses, service centers, laboratories and other facilities) at approximately [removed: 375] [added: 385] locations primarily in the U.S. Additionally, we [removed: managed] [added: manage] or [removed: occupied] [added: occupy] approximately 15 government-owned facilities under lease and other arrangements.

At December 31, [removed: 2019,] [added: 2020,] we had significant operations in the following locations:

[removed: | • |] [added: -] Aeronautics - Palmdale, California; Marietta, Georgia; Greenville, South Carolina; and Fort Worth, Texas. [removed: |]

[removed: | • |] [added: -] Missiles and Fire Control \- Camden, Arkansas; Ocala and Orlando, Florida; Lexington, Kentucky; and Grand Prairie, Texas. [removed: |]

[removed: | • |] [added: -] Rotary and Mission Systems \- Shelton and Stratford, Connecticut; Orlando, Florida; Moorestown/Mt. [removed: Laurel, New Jersey; Owego and Syracuse, New York; Manassas, Virginia; and Mielec, Poland. |]

[removed: | • |] [added: -] Space \- Huntsville, Alabama; Sunnyvale, California; [removed: Colorado Springs and] Denver, Colorado; Cape Canaveral, Florida; Valley Forge, Pennsylvania; and Reading, England. [removed: |]

[removed: | • |] [added: -] Corporate activities \- Bethesda, Maryland. [removed: |]

The following is a summary of our square feet of floor space owned, leased, or utilized by business segment at December 31, [removed: 2019] [added: 2020] (in millions):

| | | [added: | | | |] Owned | | | | [added: | | | | |] Leased | | | | [removed: Government- Owned] | | | | [added: | Government- Owned | | | | | | | | |] Total | | | [added: | | |]

Laurel, New Jersey; Owego and Syracuse, New York; Manassas, Virginia; and Mielec, Poland.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Aeronautics | | | | | | 5.1 | | | | | | | | | 3.0 | | | | | | | | | 14.5 | | | | | | | | | 22.6 | | | | | |

| Missiles and Fire Control | | | | | | 7.0 | | | | | | | | | 3.1 | | | | | | | | | 1.7 | | | | | | | | | 11.8 | | | | | |

| Rotary and Mission Systems | | | | | | 11.3 | | | | | | | | | 5.8 | | | | | | | | | 0.6 | | | | | | | | | 17.7 | | | | | |

| Space | | | | | | 8.9 | | | | | | | | | 2.7 | | | | | | | | | 5.4 | | | | | | | | | 17.0 | | | | | |

| Corporate activities | | | | | | 2.5 | | | | | | | | | 0.9 | | | | | | | | | — | | | | | | | | | 3.4 | | | | | |

| Total | | | | | | 34.8 | | | | | | | | | 15.5 | | | | | | | | | 22.2 | | | | | | | | | 72.5 | | | | | |

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| Aeronautics | | 5.0 | | | | 2.7 | | | | 14.5 | | | | 22.2 | | |

| Missiles and Fire Control | | 6.7 | | | | 3.0 | | | | 1.8 | | | | 11.5 | | |

| Rotary and Mission Systems | | 11.2 | | | | 6.1 | | | | 0.5 | | | | 17.8 | | |

| Space | | 8.8 | | | | 2.1 | | | | 5.4 | | | | 16.3 | | |

| Corporate activities | | 2.6 | | | | 1.0 | | | | — | | | | 3.6 | | |

| Total | | 34.3 | | | | 14.9 | | | | 22.2 | | | | 71.4 | | |

Our executive officers as of [removed: February 7, 2020] [added: January 28, 2021] are listed below, with their ages on that date, positions and offices currently held, and principal occupation and business experience during at least the last five years.

Ambrose (age [removed: 61),] [added: 62),] Executive Vice President - Space

Colan (age [removed: 59),] [added: 60),] Vice President, Controller, and Chief Accounting Officer

[removed: Evans] [added: Ulmer] (age [removed: 54),] [added: 56), Acting] Executive Vice President - Aeronautics

[removed: She] [added: He] previously served as [removed: Deputy] Executive Vice President of [removed: Aeronautics] [added: RMS] from [removed: June 2018] [added: August 2019] to [removed: September 2018.][added: June 2020.]

[removed: Hewson] [added: Taiclet] (age [removed: 66), Chairman,] [added: 60),] President and Chief Executive Officer

[removed: Ms. Hewson] [added: Mr. Taiclet] has served as [removed: Chairman,] President and Chief Executive Officer of Lockheed Martin since [removed: January 2014.][added: June 2020.]

Lavan (age [removed: 60),] [added: 61),] Senior Vice President, General Counsel and Corporate Secretary

Mollard (age [removed: 62),] [added: 63),] Vice President and Treasurer

Possenriede (age 60), [removed: Executive Vice President and] Chief Financial Officer

Mr. Possenriede has served as [removed: Executive Vice President and] Chief Financial Officer since February 2019.

[removed: St. John] [added: Hill] (age [removed: 53),] [added: 56),] Executive Vice President - Rotary and Mission Systems

Prior to that, he served as Executive Vice President [added: of MFC from January 2018 to August 2019; Executive Vice President] and Deputy, Programs in our MFC segment from June 2017 to January 2018; and Vice President, Orlando Operations and Tactical Missiles/Combat Maneuver Systems business in our MFC segment from 2011 to May 2017.

Hewson (age 67), Executive Chairman

Ms. Hewson has served as Executive Chairman since June 2020.

She previously served as Chairman, President and Chief Executive Officer from January 2014 to June 2020.

Stephanie C.

Ms. Hill has served as Executive Vice President of Rotary and Mission Systems (RMS) since June 2020.

She previously served as Senior Vice President, Enterprise Business Transformation from June 2019 to June 2020.

Prior to that, she was Deputy Executive Vice President of RMS from October 2018 to June 2019; Senior Vice President for Corporate Strategy and Business Development from September 2017 to October 2018; and Vice President and General Manager of the former Cyber, Ships and Advanced Technologies line of business for RMS from June 2015 to September 2017.

St. John (age 54), Chief Operating Officer

Mr. St. John has served as Chief Operating Officer since June 2020.

James D.

He previously was chairman, president and chief executive officer of American Tower Corporation from February 2004 until March 2020 and executive chairman from March 2020 to May 2020.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

Gregory M.

Mr. Ulmer has served as Acting Executive Vice President, Aeronautics since December 1, 2020 and as Vice President and General Manager, F-35 Lightning II Program since March 2018.

Prior to that he served as Vice President, F-35 Aircraft Production business unit from March 2016 to March 2018.

He previously served as Vice President of Operations for Advanced Development Programs, also known as Skunk Works®, from January 2014 to March 2016.

[Table of Contents](#i74878167aa2c40f9af03ce44bcca91e2_7)[](#i74878167aa2c40f9af03ce44bcca91e2_7)

Michele A.

Ms. Evans has served as Executive Vice President of Aeronautics since October 2018.

Prior to that, she served as Vice President and General Manager, Integrated Warfare Systems and Sensors business in our Rotary and Missions Systems (RMS) segment from November 2016 to June 2018; and Vice President and General Manager, Undersea Systems business in our RMS segment from 2013 to November 2016.

Mr. St. John has served as Executive Vice President of RMS since August 2019.

He previously served as Executive Vice President of MFC from January 2018 to August 2019.

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| ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |

At January 31, 2020, we had 25,683 holders of record of our common stock, par value $1 per share.

Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol LMT.

Stockholder Return Performance Graph

The following graph compares the total return on a cumulative basis of $100 invested in Lockheed Martin common stock on December 31, 2014 to the Standard and Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.


The S&P Aerospace & Defense Index comprises Arconic Inc., General Dynamics Corporation, Huntington Ingalls Industries, L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company, Textron Inc., The Boeing Company, Transdigm Group Inc., and United Technologies Corporation.

The stockholder return performance indicated on the graph is not a guarantee of future performance.

This graph is not deemed to be “soliciting material” or to be “filed” with the U.S. Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.

Purchases of Equity Securities

There were no sales of unregistered equity securities during the quarter ended December 31, 2019.

The following table provides information about our repurchases of our common stock registered pursuant to Section 12 of the Exchange Act of 1934 during the quarter ended December 31, 2019.

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Period (a) | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b) | | |

| | | | | | | | | | | | | *(in millions)* | | |

| September 30, 2019 – October 27, 2019 | | 349,909 | | | $ | 375.53 | | | 349,909 | | | $ | 3,161 | |

| October 28, 2019 – November 24, 2019(c) | | 658,886 | | | $ | 381.99 | | | 658,886 | | | $ | 2,811 | |

| November 25, 2019 – December 31, 2019(c)(d) | | 268,914 | | | $ | 382.20 | | | 257,363 | | | $ | 2,811 | |

| Total(c) | | 1,277,709 | | | $ | 380.27 | | | 1,266,158 | | | | | |

| (a) | We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months. For example, October 28, 2019 was the first day of our November 2019 fiscal month. |

| (b) | In October 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $2.8 billion as of December 31, 2019. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The program does not have an expiration date. |

| (c) | During the fourth quarter of 2019, we entered into an accelerated share repurchase (ASR) agreement to repurchase $350 million of our common stock. We paid $350 million and received an initial delivery of 658,886 shares on October 30, 2019. Upon final settlement of the ASR agreement on December 20, 2019, we received an additional delivery of 257,363 shares of our common stock based on the average price paid per share of $381.99, calculated with reference to the volume weighted average price per share of our common stock over the term of the agreement, less a negotiated discount. See “Note 12 – Stockholders’ Equity” included in our Notes to Consolidated Financial Statements. |

| (d) | During the quarter ended December 31, 2019, the total number of shares purchased included 11,551 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units. These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the program. |

At January 22, 2021, we had 24,929 holders of record of our common stock, par value $1 per share.

Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol LMT.

Stockholder Return Performance Graph

The following graph compares the total return on a cumulative basis through December 31, 2020 of $100 invested in Lockheed Martin common stock on December 31, 2015 to the Standard and Poor’s (S&P) 500 Index and the S&P Aerospace & Defense Index.


The S&P Aerospace & Defense Index comprises General Dynamics Corporation, Howmet Aerospace Inc., Huntington Ingalls Industries, L3Harris Technologies, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Technologies Corporation, Teledyne Technologies Incorporated, Textron Inc., The Boeing Company, and Transdigm Group Inc. The stockholder return performance indicated on the graph is not a guarantee of future performance.

This graph is not deemed to be “filed” with the U.S. Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.

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Purchases of Equity Securities

There were no sales of unregistered equity securities during the quarter ended December 31, 2020.

The following table provides information about our repurchases of our common stock registered pursuant to Section 12 of the Exchange Act of 1934 during the quarter ended December 31, 2020.

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Period (a) | | | | | | Total Number of Shares Purchased | | | | | | Average Price Paid Per Share | | | | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | | | | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b) | | |

| | | | | | | | | | | | | | | | | | | | | | | | | *(in millions)* | | |

| September 28, 2020 – October 25, 2020 | | | | | | — | | | | | | $ | — | | | | | — | | | | | | $ | 3,011 | |

| October 26, 2020 – November 29, 2020 | | | | | | 87 | | | | | | $ | 350.79 | | | | | — | | | | | | $ | 3,011 | |

| November 30, 2020 – December 31, 2020 | | | | | | 9,900 | | | | | | $ | 366.61 | | | | | — | | | | | | $ | 3,011 | |

| Total (c) | | | | | | 9,987 | | | | | | $ | 366.47 | | | | | — | | | | | | | | |

(a)We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31.

As a result, our fiscal months often differ from the calendar months.

For example, October 26, 2020 was the first day of our November 2020 fiscal month.

(b)In October 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices.

From time to time, our Board of Directors authorizes increases to our share repurchase program.

The total remaining authorization for future common share repurchases under our share repurchase program was $3.0 billion as of December 31, 2020.

Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation.

This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases.

The program does not have an expiration date.

(c)During the quarter ended December 31, 2020, the total number of shares purchased included 9,987 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units.

These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the program.

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| *(In millions, except per share data)* | | [added: | | | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2017] | | [removed: 2016] | | | | [removed: 2015] [added: 2016] | | |

| Operating results [removed: (a)] | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| Net sales | | [added: | | | |] $ | [removed: 59,812] [added: 65,398] | | | [added: | |] $ | [removed: 53,762] [added: 59,812] | | | [added: | |] $ | [removed: 49,960] [added: 53,762] | | | [added: | |] $ | [removed: 47,290] [added: 49,960] | | | [added: | |] $ | [removed: 40,536] [added: 47,290] | |

| Operating profit [removed: (b)(c)(d)(e)(f)] [added: (a)(b)(c)(d)(e)(f)] | | [removed: 8,545] | | | | [added: 8,644 | | | | | | 8,545 | | | | | |] 7,334 | | | | [removed: 6,744] | | [added: 6,744] | | [removed: 5,888] | | | | [removed: 5,233] [added: 5,888] | | |

| Net earnings from continuing operations [removed: (b)(c)(d)(e)(f)(g)(h)] [added: (a)(b)(d)(e)(f)(g)(h)] | | [removed: 6,230] | | | | [added: 6,888 | | | | | | 6,230 | | | | | |] 5,046 | | | | [removed: 1,890] | | [added: 1,890] | | [removed: 3,661] | | | | [removed: 3,126] [added: 3,661] | | |

| Net [added: (loss)] earnings from discontinued operations (i) | | [removed: —] | | | | [added: (55) | | | | | |] — | | | | [removed: 73] | | [added: —] | | [removed: 1,512] | | | | [removed: 479] [added: 73] | | | [added: | | | 1,512 | | |]

| Net earnings [removed: (c)(d)(e)(f)(g)(h)] [added: (b)(c)(d)(e)(f)(g)(h)] | | [removed: 6,230] | | | | [added: 6,833 | | | | | | 6,230 | | | | | |] 5,046 | | | | [removed: 1,963] | | [added: 1,963] | | [removed: 5,173] | | | | [removed: 3,605] [added: 5,173] | | |

| Earnings from continuing operations per common share | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| Basic [removed: (b)(c)(d)(e)(f)(g)(h)] [added: (a)(b)(d)(e)(f)(g)(h)] | | [removed: 22.09] | | | | [added: 24.60 | | | | | | 22.09 | | | | | |] 17.74 | | | | [removed: 6.56] | | [added: 6.56] | | [removed: 12.23] | | | | [removed: 10.07] [added: 12.23] | | |

| Diluted [removed: (b)(c)(d)(e)(f)(g)(h)] [added: (a)(b)(d)(e)(f)(g)(h)] | | [removed: 21.95] | | | | [added: 24.50 | | | | | | 21.95 | | | | | |] 17.59 | | | | [removed: 6.50] | | [added: 6.50] | | [removed: 12.08] | | | | [removed: 9.93] [added: 12.08] | | |

| Earnings [added: (loss)] from discontinued operations per common share | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| Basic | | [removed: —] | | | | [added: (0.20) | | | | | |] — | | | | [removed: 0.26] | | [added: —] | | [removed: 5.05] | | | | [removed: 1.55] [added: 0.26] | | | [added: | | | 5.05 | | |]

| Diluted | | [removed: —] | | | | [added: (0.20) | | | | | |] — | | | | [removed: 0.25] | | [added: —] | | [removed: 4.99] | | | | [removed: 1.53] [added: 0.25] | | | [added: | | | 4.99 | | |]

| Earnings per common share | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| Basic [removed: (b)(c)(d)(e)(f)(g)(h)] [added: (a)(b)(d)(e)(f)(g)(h)] | | [removed: 22.09] | | | | [added: 24.40 | | | | | | 22.09 | | | | | |] 17.74 | | | | [removed: 6.82] | | [added: 6.82] | | [removed: 17.28] | | | | [removed: 11.62] [added: 17.28] | | |

| Diluted [removed: (b)(c)(d)(e)(f)(g)(h)] [added: (a)(b)(d)(e)(f)(g)(h)] | | [removed: 21.95] | | | | [added: 24.30 | | | | | | 21.95 | | | | | |] 17.59 | | | | [removed: 6.75] | | [added: 6.75] | | [removed: 17.07] | | | | [removed: 11.46] [added: 17.07] | | |

| Cash dividends declared per common share | | [added: | | | |] $ | [removed: 9.00] [added: 9.80] | | | [added: | |] $ | [removed: 8.20] [added: 9.00] | | | [added: | |] $ | [removed: 7.46] [added: 8.20] | | | [added: | |] $ | [removed: 6.77] [added: 7.46] | | | [added: | |] $ | [removed: 6.15] [added: 6.77] | |

| Balance sheet [removed: (a)] | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| Cash, cash equivalents and short-term investments [removed: (c)] [added: (b)] | | [added: | | | |] $ | [removed: 1,514] [added: 3,160] | | | [added: | |] $ | [removed: 772] [added: 1,514] | | | [added: | |] $ | [removed: 2,861] [added: 772] | | | [added: | |] $ | [removed: 1,837] [added: 2,861] | | | [added: | |] $ | [removed: 1,090] [added: 1,837] | |

| Total current assets [removed: (j)] | | [removed: 17,095] | | | | [added: 19,378 | | | | | | 17,095 | | | | | |] 16,103 | | | | [removed: 17,505] | | [added: 17,505] | | [removed: 14,780] | | | | [removed: 14,573] [added: 14,780] | | |

| Goodwill | | [removed: 10,604] | | | | [added: 10,806 | | | | | | 10,604 | | | | | |] 10,769 | | | | [removed: 10,807] | | [added: 10,807] | | [removed: 10,764] | | | | [removed: 10,695] [added: 10,764] | | |

| Total assets [removed: (c)(j)(k)] [added: (b)] | | [removed: 47,528] | | | | [added: 50,710 | | | | | | 47,528 | | | | | |] 44,876 | | | | [removed: 46,620] | | [added: 46,620] | | [removed: 47,560] | | | | [removed: 49,304] [added: 47,560] | | |

| Total current liabilities [removed: (j)] | | [removed: 13,972] | | | | [added: 13,933 | | | | | | 13,972 | | | | | |] 14,398 | | | | [removed: 12,913] | | [added: 12,913] | | [removed: 12,456] | | | | [removed: 13,918] [added: 12,456] | | |

| Total debt, net | | [removed: 12,654] | | | | [added: 12,169 | | | | | | 12,654 | | | | | |] 14,104 | | | | [removed: 14,263] | | [added: 14,263] | | [removed: 14,282] | | | | [removed: 15,261] [added: 14,282] | | |

| Total liabilities [removed: (c)(j)(k)] [added: (b)(k)] | | [removed: 44,357] | | | | [added: 44,672 | | | | | | 44,357 | | | | | |] 43,427 | | | | [removed: 47,396] | | [added: 47,396] | | [removed: 46,083] | | | | [removed: 46,207] [added: 46,083] | | |

| Total equity (deficit) [removed: (c)(g)] [added: (b)(g)] | | [removed: 3,171] | | | | [added: 6,038 | | | | | | 3,171 | | | | | |] 1,449 | | | | [removed: (776] | | [removed: )] [added: (776)] | | [removed: 1,477] | | | | [removed: 3,097] [added: 1,477] | | |

| Common shares in stockholders’ equity at year-end | | [removed: 280] | | | | [added: 279 | | | | | | 280 | | | | | |] 281 | | | | [removed: 284] | | [added: 284] | | [removed: 289] | | | | [removed: 303] [added: 289] | | |

| Cash flow information | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| Net cash provided by operating activities [removed: (c)] [added: (b)(c)] | | [added: | | | |] $ | [removed: 7,311] [added: 8,183] | | | [added: | |] $ | [removed: 3,138] [added: 7,311] | | | [added: | |] $ | [removed: 6,476] [added: 3,138] | | | [added: | |] $ | [removed: 5,189] [added: 6,476] | | | [added: | |] $ | [removed: 5,101] [added: 5,189] | |

| Net cash used for investing activities [removed: (l)] | | [removed: (1,241] | | [removed: )] | | [removed: (1,075] [added: (2,010)] | | [removed: )] | | [removed: (1,147] | | [removed: )] [added: (1,241)] | | [removed: (985] | | [removed: )] | | [removed: (9,734] [added: (1,075)] | | [removed: )] | [added: | | | (1,147) | | | | | | (985) | | |]

| Net cash (used for) provided by financing activities [removed: (m)] | | [removed: (5,328] | | [removed: )] | | [removed: (4,152] [added: (4,527)] | | [removed: )] | | [removed: (4,305] | | [removed: )] [added: (5,328)] | | [removed: (3,457] | | [removed: )] | | [removed: 4,277] [added: (4,152)] | | | [added: | | | (4,305) | | | | | | (3,457) | | |]

| Backlog [removed: (a)(n)] | | [added: | | | |] $ | [removed: 143,981] [added: 147,131] | | | [added: | |] $ | [removed: 130,468] [added: 143,981] | | | [added: | |] $ | [removed: 105,493] [added: 130,468] | | | [added: | |] $ | [removed: 103,458] [added: 105,493] | | | [added: | |] $ | [removed: 94,756] [added: 103,458] | |

[removed: | (b) | Our] [added: (a)Our] operating profit and net earnings from continuing operations and earnings per share from continuing operations were affected by severance [removed: and restructuring] charges of [removed: $96] [added: $27] million [removed: ($76] [added: ($21] million, or [removed: $0.26] [added: $0.08] per share, after-tax) in [removed: 2018,] [added: 2020 primarily related to corporate functions,] severance [added: and restructuring] charges of [removed: $80] [added: $96] million [removed: ($52] [added: ($76] million, or [removed: $0.17] [added: $0.26] per share, after-tax) in [removed: 2016,] [added: 2018] and severance charges of [removed: $82] [added: $80] million [removed: ($53] [added: ($52] million, or $0.17 per share, after-tax) in [removed: 2015. See “Note 15 – Severance and Restructuring Charges” included in our Notes to Consolidated Financial Statements for a discussion of 2018 severance and restructuring charges. |][added: 2016.]

[removed: | (d) | In] [added: (d)In] 2019 and 2017, we recorded a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per share, after-tax) and $198 million ($122 million, or $0.42 per share, after-tax) related to properties sold in 2015 as a result of completing our remaining obligations. [removed: |]

[removed: | (e) | For] [added: (e)For] the year ended December 31, 2019, net earnings include a gain of $34 million (approximately $0 after-tax) for the sale of our Distributed Energy Solutions business. [removed: |]

[removed: | (f) | For] [added: (f)For] the year ended December 31, [added: 2020 and] 2018, operating profit includes a non-cash asset impairment charge of [added: $128 million ($96 million, or $0.34 per share, after-tax) and] $110 million ($83 million, or $0.29 per share, after-tax) related to our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC). [removed: For the year ended December 31, 2017, operating profit includes a $64 million ($40 million, or $0.14 per share, after-tax) |]

[removed: | (g) | In] [added: (g)In] 2017, we recorded a net one-time tax charge of $2.0 billion ($6.77 per share), substantially all of which was non-cash, primarily related to the estimated impact of the Tax Cuts and Jobs Act [added: of 2017] (see “Note [removed: 9] [added: 10] – Income Taxes” included in our Notes to Consolidated Financial Statements). [removed: This charge along with our annual re-measurement adjustment related to our postretirement benefit plans of $1.4 billion resulted in a deficit in our total equity as of December 31, 2017. |]

[removed: | (h) |] Net earnings for the year ended December 31, [removed: 2019 include benefits of $127 million ($0.45 per share) for additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and our change in tax accounting method. Net earnings for the year ended December 31,] 2018 include benefits of $146 million ($0.51 per share) for additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on December 22, 2017 and our change in tax accounting method (see “Note [removed: 9] [added: 10] – Income Taxes” included in our Notes to Consolidated Financial Statements). [removed: |]

[removed: | (i) | Our net earnings from discontinued] [added: Discontinued] operations [removed: in] [added: for the year ended December 31,] 2016 [removed: includes] [added: include] a $1.2 billion net gain related to the divestiture of our IS&GS business in 2016. [removed: |]

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(b)The impact of our postretirement benefit plans can cause our operating profit, net earnings, cash flows and certain amounts recorded on our consolidated balance sheets to fluctuate.

Accordingly, our net earnings were affected by a net FAS/CAS pension adjustment of $2.1 billion in 2020, $1.5 billion in 2019, $1.0 billion in 2018, $876 million in 2017, and $902 million in 2016.

We made pension contributions of $1.0 billion in 2020, $1.0 billion in 2019, $5.0 billion in 2018, $46 million in 2017, and $23 million in 2016, and these contributions caused fluctuations in our operating cash flows and cash balance between each of those years.

See “Critical Accounting Policies - Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information.

(c)Cash generated from operations for the year ended December 31, 2020 reflects the receipt of approximately $1.2 billion of net accelerated progress payments due to the U.S. Government's increase in the progress payment rate from 80 percent to 90 percent and the deferral of $460 million for the employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act.

We used the accelerated progress payments from the U.S. Government plus cash on hand to accelerate $2.1 billion of payments to our suppliers as of December 31, 2020 that are due by their terms in future periods.

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For the year ended December 31, 2017, operating profit includes a $64 million ($40 million, or $0.14 per share, after-tax) charge, which represents our portion of a non-cash asset impairment charge recorded by AMMROC.

This charge along with our annual re-measurement adjustment related to our postretirement benefit plans of $1.4 billion resulted in a deficit in our total equity as of December 31, 2017.

(h)Net earnings for the year ended December 31, 2019 include benefits of $127 million ($0.45 per share) for additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and a change in our tax accounting method.

(i)Discontinued operations for the year ended December 31, 2020 include a $55 million ($0.20 per share) non-cash charge resulting from the resolution of certain tax matters related to the former Information Systems & Global Solutions (IS&GS) business divested in 2016.

(j)Effective January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).

As of December 31, 2019, right-of-use operating lease assets were $1.0 billion and operating lease liabilities were $1.1 billion.

Approximately $855 million of operating lease liabilities were classified as noncurrent.

There was no impact to our consolidated statements of earnings or cash flows as a result of adopting this standard.

Prior periods were not restated for the adoption of ASU 2016-02.

See “Note 9 – Leases” included in our Notes to Consolidated Financial Statements.

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| --- | --- |

| (a) | Amounts for 2015 do not reflect the impact of the adoption of Accounting Standards Update (ASU) 2014-09, *Revenue from Contracts with Customers (Topic 606)*, as amended, in the first quarter of 2018. |

| (c) | The impact of our postretirement benefit plans can cause our operating profit, net earnings, cash flows and certain amounts recorded on our consolidated balance sheets to fluctuate. Accordingly, our net earnings were affected by a net FAS/CAS pension adjustment of $1.5 billion in 2019, $1.0 billion in 2018, $876 million in 2017, $902 million in 2016, and $400 million in 2015. We made pension contributions of $1.0 billion in 2019, $5.0 billion in 2018, $46 million in 2017, $23 million in 2016, and $5 million in 2015, and these contributions caused fluctuations in our operating cash flows and cash balance between each of those years. See “Critical Accounting Policies - Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information. |

charge, which represents our portion of a non-cash asset impairment charge recorded by AMMROC.

| (j) | Included in total current assets are assets of discontinued operations of $1.0 billion in 2015. Included in total current liabilities are liabilities of discontinued operations of $900 million in 2015. Included in total assets are assets of discontinued operations of $4.1 billion in 2015. Included in total liabilities are liabilities of discontinued operations of $1.2 billion in 2015. |

| (k) | Effective January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). As of December 31, 2019, right-of-use operating lease assets were $1.0 billion and operating lease liabilities were $1.1 billion. Approximately $855 million of operating lease liabilities were classified as noncurrent. There was no impact to our consolidated statements of earnings or cash flows as a result of adopting this standard. Prior periods were not restated for the adoption of ASU 2016-02. See “Note 8 – Leases” included in our Notes to Consolidated Financial Statements. |

| (l) | The increase in our cash used for investing activities in 2015 was attributable to acquisitions of businesses, including the $9.0 billion acquisition of Sikorsky in 2015, net of cash acquired. |

| (m) | The increase in our cash provided by financing activities in 2015 was primarily a result of the debt incurred to fund the Sikorsky acquisition. |

| (n) | Backlog at December 31, 2015 includes approximately $15.6 billion related to Sikorsky, but excludes $4.8 billion related to our IS&GS business. |

We have audited the accompanying consolidated balance sheets of Lockheed Martin Corporation (the Corporation) as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] the related consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, [removed: 2019,] [added: 2020,] and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation at December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2019,] [added: 2020,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated [removed: February 7, 2020] [added: January 28, 2021] expressed an unqualified opinion thereon.

| | | [added: | | | |] Revenue recognition based on the percentage of completion method | [added: | |]

| *Description of the Matter* | | [added: | | | |] For the year ended December 31, [removed: 2019,] [added: 2020,] the Corporation recorded net sales of [removed: $59.8] [added: $65.4] billion. As more fully described in Note 1 to the consolidated financial statements, the Corporation generates the majority of its net sales from long-term contracts with its customers whereby substantially all of the Corporation’s revenue is recognized over time using the percentage-of-completion cost-to-cost measure of progress. Under the percentage-of-completion cost-to-cost measure of progress, the Corporation measures progress towards completion based on the ratio of costs incurred to date to the estimated total costs to complete the performance obligation(s) (referred to as the estimate-at-completion analysis). The Corporation estimates profit on these contracts as the difference between total estimated [removed: revenues, including estimated variable consideration,] [added: revenues] and total estimated cost at [removed: completion and recognizes that profit as costs are incurred using the current estimate of the profit booking rate.] [added: completion.] The percentage-of-completion cost-to-cost method requires management to make significant estimates and assumptions to estimate contract [removed: sales, costs] [added: sales] and [removed: profit] [added: costs] associated with its contracts with customers. At the outset of a long-term contract, the Corporation identifies risks to the achievement of the technical, schedule and cost aspects of the [removed: contract, and estimates the variable consideration to be received.] [added: contract.] Throughout the contract life cycle, the Corporation monitors and assesses the effects of those risks on its estimates of sales and total costs to complete the contract. Profit booking rates may increase during the performance of the contract if the Corporation successfully retires risks surrounding the technical, schedule and cost aspects of the contract, which would decrease the estimated total costs to complete the [removed: contract or increase the variable consideration it expects to receive on the] contract. Conversely, the profit booking rates may decrease if the estimated total costs to complete the contract [removed: increase or the Corporation’s estimates of variable consideration they expect to receive decrease.] [added: increase.] Changes to the profit booking rates resulting from changes in estimates could have a material effect on the Corporation’s results of operations. Auditing the Corporation’s estimate-at-completion analyses used in its revenue recognition process was complex due to the judgment involved in evaluating the significant estimates and assumptions made by management in the creation and subsequent updates to the Corporation’s estimate-at-completion [removed: analyses and related profit booking rates.] [added: analyses.] The estimate-at-completion analyses [removed: and profit booking rate] of each contract consider risks surrounding the Corporation’s ability to [removed: estimate the variable consideration to be received and to] achieve the technical, schedule, and cost aspects of the contract. | [added: | |]

| *How We Addressed the Matter in Our Audit* | | [added: | | | |] We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over the Corporation’s revenue recognition process. For example, we tested internal controls over management’s review of the estimate-at-completion analyses and the significant assumptions underlying the estimated contract value [removed: (including variable consideration)] and estimated total costs to complete. We also tested internal controls that management executes to validate the data used in the estimate-at-completion analyses was complete and accurate. To test the accuracy of the Corporation’s estimate-at-completion analyses, our audit procedures included, among others, comparing estimates of labor costs, subcontractor costs, [removed: materials] and [removed: variable consideration] [added: materials] to historical results of similar contracts, and agreeing the key [removed: terms, including the] terms [removed: of the variable consideration,] to contract documentation and management’s estimates. We also performed sensitivity analyses over the significant assumptions to evaluate the change in the profit booking rates resulting from changes in the assumptions. | [added: | |]

| *Description of the Matter* | | [added: | | | |] At December 31, [removed: 2019,] [added: 2020,] the Corporation’s Sikorsky reporting unit had a goodwill balance of $2.7 [removed: billion, and the Sikorsky indefinite-lived trademark intangible asset was $887 million,] [added: billion] which represented approximately [removed: 6% and 2%] [added: 5.2%] of total [removed: assets, respectively.] [added: assets.] As discussed in Note 1 and Note [removed: 3] [added: 4] to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level using either a qualitative or quantitative approach. Under the quantitative approach to test for goodwill impairment, the Corporation compares the fair value of a reporting unit to its carrying amount, including goodwill. Generally, the Corporation estimates the fair value of its reporting units using a combination of a discounted cash flows analysis and market-based valuation methodologies. [removed: Similarly, the trademark intangible asset is not amortized but rather is tested by management for impairment at least annually using a market-based valuation methodology.] Auditing management’s annual impairment [removed: tests] [added: test] over the Sikorsky reporting unit goodwill [removed: and trademark intangible asset] was complex and highly judgmental due to the significant estimation required in determining the fair [removed: values.] [added: value.] In particular, the fair value [removed: estimates were] [added: estimate was] sensitive to significant assumptions, such as revenue growth rates, operating margins, cash flows, terminal value, and weighted average cost of capital, which are affected by expectations about future market or economic conditions and expected future operating results of the Sikorsky business. | [added: | |]

| *How We Addressed the Matter in Our Audit* | | [added: | | | |] We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over the Corporation’s goodwill impairment [removed: review and trademark intangible asset impairment process,] [added: review,] including controls over management’s review of the valuation [removed: models] [added: model] and significant assumptions described above. We also tested the internal controls management executes to validate the data used in the valuation [removed: models] [added: model] was complete and accurate. To test the estimated fair [removed: values] [added: value] of the Sikorsky reporting [removed: unit and trademark intangible asset,] [added: unit,] we performed audit procedures that included, among others, assessing the valuation [removed: methodologies] [added: methodology] used by the Corporation, involving our valuation specialists to assist in testing the significant assumptions described above that are used in the [removed: valuations,] [added: valuation,] and testing the completeness and accuracy of the underlying data the Corporation used in its [removed: analyses.] [added: analysis.] For example, we compared the significant assumptions to current industry, market and economic trends, historical results of the Sikorsky business, and other relevant factors. We also performed a sensitivity analysis over the significant assumptions to evaluate the impact that changes in significant assumptions would have on the fair value of the reporting [removed: unit and trademark intangible asset.] [added: unit.] | [added: | |]

| | | [added: | | | |] Defined Benefit Pension Plan Obligation | [added: | |]

| *Description of the Matter* | | [added: | | | |] At December 31, [removed: 2019,] [added: 2020,] the Corporation’s aggregate obligation for its qualified defined benefit pension plans was [removed: $48.67] [added: $51.3] billion and exceeded the gross fair value of the related plan assets of [removed: $35.44] [added: $38.4] billion, resulting in a net unfunded qualified defined benefit pension obligation of [removed: $13.23] [added: $12.9] billion. As explained in Note [removed: 11] [added: 12] of the consolidated financial statements, the Corporation remeasures the qualified defined benefit pension assets and obligations at the end of each year or more frequently upon the occurrence of certain events. The amounts are measured using actuarial valuations, which depend on key assumptions such as the discount rate, the expected long-term rate of return on plan assets, and participant longevity. Auditing the defined benefit pension obligation was complex and required the involvement of specialists as a result of the judgmental nature of the actuarial assumptions such as discount rate, expected long-term rate of return on plan assets, and participant longevity, used in the measurement process. These assumptions have a significant effect on the projected benefit obligation, with the discount rate being the most sensitive of those assumptions. | [added: | |]

| *How We Addressed the Matter in Our Audit* | | [added: | | | |] We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over management’s measurement and valuation of the defined benefit pension obligation calculations. For example, we tested the internal controls over management’s review of the defined benefit pension obligation calculations, the significant actuarial assumptions and the data inputs provided to the actuaries. To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions described above and the underlying data used by the Corporation. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from prior year due to the change in service cost, interest cost, benefit payments, actuarial gains and losses, contributions, new longevity assumptions and plan amendments. In addition, we involved our actuarial specialists to assist in evaluating management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation. As part of this assessment, we compared the projected cash flows to prior year and compared the current year benefits paid to the prior year projected cash flows. To evaluate the mortality rate and the longevity, we evaluated management’s selection of mortality base tables and improvement scales, adjusted for entity-specific factors. We also tested the completeness and accuracy of the underlying data, including the participant data provided to the Corporation’s actuarial specialists. Lastly, to evaluate the expected return on plan assets, we assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments. | [added: | |]

| | | [added: | | | |] Years Ended December 31, | | | | | | | | | | | [added: | | | |]

| | | [removed: 2019] | | | | [removed: 2018] [added: 2020] | | | | [removed: 2017] | | [added: 2019] | [added: | | | | | 2018 | | |]